Professor Elam

Accounting & Investing Info for San Antonio A & M

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  • Professor Elam

    Who’s the Customer?

    Jesse's Cafe and James Rickard frame the picture clearly here. This will form the base of another ethical case I am constructing, or rather that meta data and data mining have constructed for all of us. 

    Front running is the practice of knowing what trades are about to happen, executing a trade in front of the customer trade that will put the house, brokerage firm, casino, what have you, to the advantage of that party. For example if I know customers are about to short Toyota en masse I short first before the price drops and get the better and higher price in front of the customer. This practice is a no no according to NYSE standards but is precisely what is happening. So, the host or in this case Goldman becomes the beneficiary of the information to the disadvantage of the customer. 

  • Professor Elam

    Greece Bailout?

    The European Union has reserved baiouts for natural disasters. Greece is a man made financial disaster, borrowing 12% of its GDP, just like Britain and the US come to think of it. Bond spreads, the additional percent points above other country costs of borrowing, have widened for Greece, ie Greece is paying a lot more to borrow money. This article suggests that the EMU European Monetary Union will come to the resuce with, well, with something. But will this set a precedent? What about Portugal, Italy, and Spain?

    This will strengthen the influence of Germany but will it cause others to toe the financial line or like Lehman expect a bailout?

  • Professor Elam

    Japan Inc.

    Sunday Jan 31 2010

    Picture 4  Sony Toyota and JAL are having problems.   Once Toyota got as big as GM it started making the same kinds of mistakes. As the article points out a one part fits all strategy saves money but raises the possibility of Tipping Point across all model lines if the part fails. Which is what happened. 

    There is always someone coming up from behind. Woolco is gone, K Mart ate Sears, what good did that do Sears? and Wal Mart is now enjoying a resurgence in price centered behavior. 

    Group think is part of the problem. TQM is not about innovation that's for sure. The downfall is quality is trading the quality idea for larger market share. It seems that the reputation for quality goes hand in hand with smaller markets and defense of price. Apple computer and Macintosh stereos come to mind. Trek and Cannondale bikes are not sold in department stores. Stihl power products are not sold in big box retailers. Defending one's product integrity is another piece of the puzzle. 

    TCU has improved its academic status in the last ten years. It made the decision to cap enrollment at 7500, the accolades keep coming.  

  • Professor Elam

    Humpty Dumpty Had a Great Fall

    Sunday Jan 31 2010

    the Express News continues its coverage of the fallen wall, and now, the potential for other 'retaining walls' to fall as well. The Northern reaches of San Antonio extend into the Hill country. Many 'lots' are unsuitable for building given the hilly terrain. And so builders simply terrace them by constructing walls. It turns out that many of these walls never got a permit to be built. 

    Picture 3  I am currently reading The Tipping Point by Malcom Galdwell. Gladwell makes the case that small changes can finally bring a big change, remember the camel and that one last straw? In the photo at left the breach in the wall is evident. Not only does this endanger the houses above the wall, what about those below the wall?  

    There are well, no telling how many of such walls all over North San Antonio. Now I suspect that buyers will be shunning houses depending on such a wall. Toyota will fix their accelerator pedal problems. I am not sure how this problem will be resolved. 

    Again this forms the basis for a good discussion in ethics class.  Who's responsible?

    Negligent city inspectors, permit writers

    Builders who are less than forthright and careless in procedures, the wall at left did not have an engineers stamp on it, surprise surprise!

    Naive home buyers

  • Professor Elam

    GM Offers $1,000 for Toyota Trade In Connecting the dots

    Friday Jan 29 2010

    GM has offered a $1,000 trade in allowance on Toyotas. Hmm, see our previous post today about the accelerator problem with Toyotas. 

    Now let's connect the dots. 

    Toyota has a problem with accelerators sticking. 

    Toyota recalls vehicles under the DOT regulations, remember the Dept of Transportation is part of the Federal Government. 

    Toyota does not operate in union shop states for a majority of its plants. 

    The UAW makes large donations to this Administration.  Proof, the Administration left GM bondholders with nothing and made the UAW a big shareholder.

    Now the Govt Motors is General Motors. 

    Just days after the recall, Govt Motors offers incentives for Toyota Trade Ins.

    Okay you connect the dots, is there a conflict of interest here?  Is the US Govt favoring the UAW, ie, GM Chrysler workers and contributors to the election campaign of the Administration over Toyota?

    You tell me. 

    Oh did I mention that Congress has scheduled hearings on the Toyota recall?  Will that be a show trial, remember when Congress excoriated GM et al for flying to Washington DC to ask for a bailout?

  • Professor Elam

    Centex Homes Hits a New Low, Literally

    Friday Jan 29 2010

    Picture 10  Centex is a subsidiary of Pulte Homes. Last Sunday a thirty foot retaining wall split. This caused the evacuation of 91 homes with 25 homes declared unsafe to occupy. Interestingly the residents have discovered they signed a compulsory arbitration agreement when they bought the homes. Now, what to do? Centex is monitoring the situation. Well that's reassuring, eh?

    While I am no expert on this particular situation one would think this is an ideal case for the Ethics class. Who are the stakeholders?  A short list might include

    Homeowners

    Mortgage Company

    City Building Inspection, Permit Dept

    Centex Engineers and Attorneys

    Hmm, would greed be an issue here?  OR is this just an error of er ah design?  Who is responsible?  What constitutes justice for the homeowners?  Does the City bear some responsibility?  What should Centex be obligated to do for the homeowners?  Oh, what about the 25 famiilies that cannot move back into their homes?  Do you have a spare couch at your house?

    There are numerous articles about this and they continue each day. Let's discuss it on BB in the Ethics class. 

  • Professor Elam

    Reading Toyota’s Tea Leaves

    Friday Jan 29 2010

    Picture 9

    Click on the chart for a larger view. 

    The red and blue lines are exponential moving averages MAs. The red and black bars are the price ranges for stocks in a week long activity. In the summer of 2007 we got a crossover of the MAs to the downside, this is a sell signal. Note we did not get a buy signal until the winter of 2009. Share prices fell as hedge funds and others sold. The panic low went on for several months at the end of 2008. At bottom note the huge volume in the vertical bars. The red bars are net selling, the black are net buying. 

    Now we have another panic. Toyota is embroiled an a hung accelerator controversy. They have recalled millions of vehicles and ceased production for the time being. Note the tall red vertical bar at the far right, bottom panel. Funds are selling Toyota shares at any price. IF this keeps up into next week, no doubt it will generate a sell signal with a crossover of the MAs to the downside. 

    Now the question, is this the end of Toyota?  I doubt that.  However this may be a preview of what we will see this fall if another market wide panic ensues. We have a huge mood shift from positive to negative. Toyota is a large capitalization stock listed on many exchanges. And so this panic will help bring market averages down around the world. 

  • Professor Elam

    Elizabeth Warren on Daily

    Elizabeth Warren explains the TARP fiasco on the Daily Show. 

  • Professor Elam

    Congress Eyes Toyota

    You will recall that our political heroes, the Federal Government, now own Chrysler and GM. In a classic, hit em while they are down strategy, Congress now plans hearings on the hung accelerator story at Toyota.   

    Apparently the problem is actually a misaligned floor mat. 

    Picture 7  The same sort of unintended acceleration story nearly sunk Audi a couple of decades back. Owners reported that cars would suddenly for no reason, accelerate without notice, often through garage walls. Nothing was ever proved but Audi suffered lost sales and declining car values for years. 

    What is really going on here is the downturn in socionomic mood. Bear markets bring out the worst in everyone. The mood is exclusionary, not inclusionary. We see this in dictators like Chavez blaming the failure of his own socialist policies on the US. Ditto, Putin blames the west for the lack of modernization in Russia. The truth is that Toyota has played by the rules but with no union plants, you can bet the UAW is looking for blood in the Water as Michigan continues its downward spiral, courtesy of GM and the UAW. 

    As we have noted there is a new Civil War. The new Civil War falls along the  same lines as the 1861 version. But this time, it is the Solid South that is doing better industrially. And it is doing so in Right to Work states without compulsory union membership. 

    Toyota has followed the rules. I have a 2009 RAV 4 and the accelerator has not stuck, but the attitudes in Washington certainly have. 

  • Professor Elam

    In Front of the Curve – Weekly Column

    Cupertino,
    CA Apple Computer announced the highest profit and gross revenue in its
    history. It is now a $50 billion sales company.

    Steve
    Jobs at the much anticipated  Apple
    iPad Announcement

    Conventional wisdom has it that earnings drive
    stock prices, so Apple stock went up on these announcements, right?  As a matter of fact Apple fell 4% then
    next day. AAPL is already down $15 from its all time high. What, how can that
    be? The answer is easy, buy the rumor, sell the news. Markets are all about
    anticipating what is going to happen. Apple stock helped the NASD recover from
    the lows of last March 2009. But the recovery ended just as Apple trotted out
    its announcement.

    We use Apple as an example of how once all and I
    mean all, the good news is in, the only thing a market can do is fall. All the
    buyers have crowded the stage anticipating ‘the event.’  Sellers let the buyers have whatever is
    in question, Apple stock, barrels of oil, ounces of gold, and then once the
    market runs out of buyers, the price can only fall.

    Our political heroes in the Senate, the ones
    that engineered front room deals to pay Louisiana $300 M for Mary Landrieu’s
    vote and exempt Nebraska from paying the same taxes other states would pay,
    essentially re appointed  Ben
    Bernake as FED chief yesterday.

    The result will be more of the same. Ben has
    flooded the markets with money, read your and my debt. That money has gone to
    ‘banks’ a euphemism for everyone that wanted  a Federal lifeline in the wake of the Fall 2008 meltdown.
    But all that TARP (politically named the Troubled Asset Relief Plan) money did
    not result in a  Jimmy Stewart
    Donna Reed     Wonderful Life scenario.
    With no particular strings attached, the ‘to big to fail banks’ namely Goldman
    Sachs, invested the TARP money in the stock market at the lows of last March. The
    reverse psychology happens to the downside. Once all the sellers were flushed
    out, the torrent of one trillion dollars did not meet any selling resistance,
    bingo. Stocks marched from Dow 6600 to Dow 10,600 or so. Note, the Dow
    Industrials never exceeded its halfway point of 10,750. That divides the crash
    from 2007 to 2009 half way. Thus there appears to still be more folks that want
    to sell than buy.

    Meanwhile the US Dollar Index has finally
    stirred from its sub 75 low to about 79. And that is very important for the
    price of oil.   West Texas
    Intermediate fell from $84 to $74. But wait, conventional wisdom CW says that
    the US buck has to decline.  CW
    expects hyper inflation as the Government is printing so much money, what
    happened.?

    What happened is the inevitable collapse of the
    economies of the poorer European countries of Portugal, Italy, Greece, and
    Spain. Oh, and Bill Gross at PIMCO suggests we add Britian, yes Hail Britiania
    to the list. All are spending more than they take in to make the long story
    short, and bond interest is rising. The Dollar and the Yen become safe havens
    as the European Community will have to decide whether to move the goal post to
    save the weaker countries. 

    It appears this is a larger correction than the
    July 2009 pullback. Is it THE top? 
    We don’t know yet, many are calling for The Top now. But that seems a
    bit too pat and simple to me. It could be that the Dollar rallies to 81 and then
    pulls back again. That would allow one last rally for commodities and stocks.
    And it would allow the Government and pundits to say, see, it is working, the
    worst is past. And that would be a top.

    Please be aware that the stock market has now
    duplicated, percent wise, its post crash 1929 recovery. Back then it was Dow
    390 in 1929 to 190 to 290 by the spring of 1930, roughly speaking. That
    recovery assured everyone the worst was indeed over. It was not. In the nest
    two years the Dow slumped to 41, one tenth of its all time high. It would take
    until 1954 for the Dow to exceed 390 again. Do not dismiss this possibility.
    Citi bank trades at $3.25, less than one tenth of its $50 high just three years
    back. And that is after all the King’s TARP money rode to the rescue.

    We should see a rally into February and then a
    re test of the $60s for oil. And then, we will update you on the Dollar and
    Oil.